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Option C

Target contract with Activity Schedule

Reviewed by LazyQS Editorial·Last reviewed: 2026-02-19

Plain English Explanation

Option C is a target cost contract. You are paid your Defined Cost (actual cost) plus a Fee. A target price is set (based on an Activity Schedule), and at the end of the project, actual Defined Cost is compared against the target. Any saving is shared between the Client and Contractor; any overrun is also shared — according to the 'pain/gain' split agreed in the Contract Data.

Option C incentivises the Contractor to be efficient and innovative, because they share in any savings. Unlike Options A and B where the Client bears re-measurement risk, under Option C the Contractor is exposed to overruns up to their agreed pain share. This requires open-book accounting — the Contractor must demonstrate their actual costs.

Option C is used on complex or high-uncertainty projects where a fixed lump sum would result in excessive risk pricing, but where there is still a desire to incentivise cost control.

Key Takeaway

Ensure every CE is processed and the target is adjusted before the final pain/gain calculation — an unadjusted target will produce an unfair outcome that is very difficult to unpick after the fact.

What This Means for Subcontractors

Subcontractors under an Option C main contract may themselves be on an Option A or B subcontract — or the main contractor may place them on a target cost subcontract too. The open-book requirements can be onerous: you may need to provide detailed cost records to support the main contractor's Defined Cost submissions. Understand what obligations flow down before you price.

Common Risks & Disputes

  • 1Pain/gain calculation disputes at the end of the project — the target must be adjusted for CEs correctly
  • 2Open-book accounting being time-consuming and resource-intensive for subcontractors
  • 3The target not being properly updated for compensation events, leading to disputes about the correct outturn comparison
  • 4Subcontractors not being passed their share of the pain/gain from the main contract
  • 5Ambiguity about what constitutes 'Defined Cost' — check the schedule of cost components carefully

Sources

  1. NEC4 ECC Main Option C— NEC4 ECC
  2. RICS Guidance Note: Target Cost Contracts and Pain/Gain Under NEC4— RICS
  3. ICE Guidance: Target Cost and Open-Book Accounting Under NEC4— ICE
  4. Fenwick Elliott: Defined Cost and Fee Under NEC4 Target Cost Options— Fenwick Elliott

Related Clauses

Option A

Priced contract with Activity Schedule

Priced alternative with Activity Schedule — no pain/gain, full cost risk

Option D

Target contract with Bill of Quantities

Target cost with BoQ — structurally similar with different interim valuation

Option E

Cost reimbursable contract

Cost reimbursable — similar open-book approach without a target

Continue Learning

Category Overview

Back to Main Options (A–F)

Adjacent Clauses

Option B Priced contract with Bill of QuantitiesOption D Target contract with Bill of Quantities

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